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In The Supreme Court of India Civil Appellate Jurisdiction: Reportable
In The Supreme Court of India Civil Appellate Jurisdiction: Reportable
Versus
JUDGMENT
Dr Dhananjaya Y Chandrachud, J
1 The appellate jurisdiction of this Court under Section 62 of the Insolvency and
Signature Not Verified
Bankruptcy Code, 2016 (“IBC”) has been invoked to challenge the judgement and
Digitally signed by
Sanjay Kumar
Date: 2021.02.09
15:59:25 IST
Reason:
order of the National Company Law Appellate Tribunal (“NCLAT” or “Appellate
Tribunal”) dated 19 October 2020. The NCLAT affirmed the decision of the National
1
Company Law Tribunal (“NCLT” or “Adjudication Authority”) dated 9 July 2020,
holding that in view of the provisions of Section 10A, which have been inserted by
Act 17 of 2020 (the “Amending Act”) with retrospective effect from 5 June 2020, the
application filed by the appellant as an operational creditor under Section 9 was not
maintainable.
2 Some of the salient facts set out in the appeal are being adverted to in order
to indicate the broad contours of the controversy. The issue involved raises a
question of law. Hence, while setting out the facts as set up in the appeal, we need
to clarify that the factual dispute has not arisen for adjudication.
3 The appellant claims that a sum of INR 104,11,76,479 is due and payable to
him pursuant to his resignation “from all capacities held by him in the respondent in
entered into by him with the respondent during his tenure as Chairman and
Managing Director. The appellant entered into an Employment Agreement with the
16 December 2013, effective from 1 January 2014, which superseded the previous
with an Incentive Agreement signed on the same date. The Incentive Agreement is
stated to have been amended and restated on 17 April 2015, along with a further
amendment through a Side Letter dated 20 April 2015. Further, the new
2
Employment Agreement was amended through a Letter Amendment No. 1 dated 17
April 2015.
respondent and its parent entity, detailing the entitlements which he claimed under
provide his services to the respondent till 30 April 2020. There was an exchange of
dated 27 March 2020, the respondent confirmed the payments which were due and
payable to him under the letter of resignation (except for point 12). The appellant is
stated to have addressed a final reminder by an email dated 27 April 2020, three
appellant issued a demand notice on 30 April 2020 in Form 3 of the IBC. The
demand notice specified that the date of default was 30 April 2020.
3
6 On 11 May 2020, the appellant filed an application1 under Section 9 of the
IBC on the ground that there was a default in the payment of his operational dues.
President of India on 5 June 2020 by which Section 10A was inserted into the IBC.
application on the basis of the newly inserted provisions of Section 10A. The NCLT
upheld the submission of the respondent, holding that a bar has been created by the
newly inserted provisions of Section 10A. This decision has been upheld in appeal
by the NCLAT.
1
IBA/215/2020
2
Ordinance 9 of 2020 (the “Ordinance”)
3
IA 395 of 2020
4
8 The issue which falls for determination in this appeal is whether the provisions
of Section 10A stand attracted to an application under Section 9 which was filed
before 5 June 2020 (the date on which the provision came into force) in respect of a
default which has occurred after 25 March 2020. Before proceeding to discuss the
• 5 June 2020 – date on which Section 10A was inserted in the IBC.
statutory form provides for a disclosure of the particulars of the operational debt. The
disclosure which has been made by the appellant includes the amount claimed in
5
10 Sub-Section (1) of Section 8 of IBC stipulates:
Under Section 9(1), the operational creditor may file an application before the
(“CIRP”), after the expiry of a period of ten days from the date of delivery of the
notice (or invoice demanding payment) under sub-Section (1) of Section 8, if the
operational creditor does not receive payment from the corporate debtor or a notice
of the dispute under sub-Section (2) of Section 8. The appellant having specified 30
April 2020 as the date of default, this appeal must proceed on that basis. It is
necessary to make this clear at the outset because an attempt has been made
during the course of the submissions by Mr Neeraj Kishan Kaul, learned Senior
Counsel appearing on behalf of the appellant, to submit that though the demand
notice mentions the date of default as 30 April 2020, the "actual first date of default"
was 21 January 2020 when the letter of resignation was tendered and that the
“second date of default' was 23 March 2020 when the sixty days’ notice period from
the letter of resignation submitted by the appellant concluded. This attempt to set
back the date of default to either 21 January 2020 or 23 March 2020 is plainly
untenable for the reason that it is contrary to the disclosure made by the appellant in
the demand notice which has been issued in pursuance of the provisions of Section
8(1) and Section 9 of the IBC. The demand notice triggers further actions which are
6
adopted towards the initiation of the insolvency resolution process. The question
situation such as the present where the application under Section 9 was filed prior to
5 June 2020, when Section 10A was inserted, and in respect of a default which has
(i) Section 10A creates a bar to the 'filing of applications' under Sections 7, 9 and
(ii) The Ordinance and the Act which replaced it do not provide for the
implication to applications which had already been filed and were pending on
5 June 2020;
(iii) Section 10A prohibits the filing of a fresh application in relation to defaults
occurring on or after 25 March 2020, once Section 10A has been notified (i.e.,
(iv) Section 10A uses the expressions "shall be filed" and "shall ever filed" which
7
(v) The IBC makes a clear distinction between the "initiation date" under Section
12 On the above premises, it has been submitted that Section 10A will have no
application. Mr Kaul also urged that in each case it is necessary for the Court and
attributable to the Covid-19 pandemic. In the present case, it was asserted that the
onset of Covid-19, which was the reason for the insertion of Section 10A, has
nothing to do with the default of the respondent to pay the outstanding operational
debt of the appellant, which owes its existence even before the onset of the
pandemic. Hence, it has been submitted that the event of default (30 April 2020) in
(i) The legislative intent in the insertion of Section 10A was to deal with an
(ii) Section 10A is prefaced with a non-obstante clause which overrides Sections
8
(iii) Section 10A provides a cut-off date of 25 March 2020 and it is evident from
the substantive part of the provision, as well as from the proviso and the
explanation, that no application can be filed for the initiation of the CIRP for a
default occurring on and after 25 March 2020, for a period of six months or as
backdrop to the insertion of Section 10A. The underlying rationale for the insertion of
Section 10A has been explained in the recitals to the Ordinance, which are extracted
below:
"…
9
AND WHEREAS it is considered expedient to exclude the
defaults arising on account of unprecedented situation
for the purposes of insolvency proceeding under this Code;”
(emphasis supplied)
16 Section 10A is prefaced with a non-obstante provision which has the effect of
(i) no application for the initiation of the CIRP by a corporate debtor shall be
filed;
(iii) for a period of six months or such further period not exceeding one year from
The proviso to Section 10A stipulates that "no application shall ever be filed" for the
initiation of the CIRP of a corporate debtor "for the said default occurring during the
said period". The explanation which has been inserted for the removal of doubts
clarifies that Section 10A shall not apply to any default which has been committed
17 Section 10A makes a reference to the initiation of the CIRP. Clauses (11) and
10
(i) the initiation date; and
following terms:
19 Section 5(11) stipulates that the date on which a financial creditor, corporate
for initiating the CIRP is the “initiation date”. Distinguished from this is the
“insolvency commencement date”, which is the date on which the application for
initiating the CIRP under Sections 7, 9 or 10, as the case may be, is admitted by the
Adjudicating Authority.
20 The substantive part of Section 10A adverts to an application for the initiation
of the CIRP. It stipulates that for any default arising on or after 25 March 2020, no
11
application for initiating the CIRP of a corporate debtor shall be filed for a period of
six months or such further period not exceeding one year "from such date" as may
be notified in this behalf. The expression "from such date” is evidently intended to
refer to 25 March 2020 so that for a period of six months (extendable to one year by
notification) no application for the initiation of the CIRP can be filed. The submission
which were filed after 5 June 2020 when the provision was inserted. Such a
21 The date of 25 March 2020 has consciously been provided by the legislature
in the recitals to the Ordinance and Section 10A, since it coincides with the date on
which the national lockdown was declared in India due to the onset of the Covid-19
June 1949 which, inter alia, provided for the reinstatement of tenants who had been
was challenged before the Supreme Court, the Constitution bench, speaking
through Justice T L Venkatarama Ayyar, relied on the recital in its preamble5 while
4
1957 SCR 605
5
“Whereas with a view to putting a check on the growing tendency of landholders to eject or dispossess tenants from
their holdings, and in the wider national interest of increasing the production of foodgrains, it is expedient to make
provisions for the protection of tenants in Rajasthan from ejectment or dispossession from their holdings.”
12
“11. In the present case, the preamble to the Ordinance
clearly recites the state of facts which necessitated the
enactment of the law in question, and Section 3 fixed the
duration of the Act as two years, on an understanding of the
situation as it then existed. At the same time, it conferred a
power on the Rajpramukh to extend the life of the Ordinance
beyond that period, if the state of affairs then should require
it. When such extension is decided by the Rajpramukh and
notified, the law that will operate is the law which was enacted
by the legislative authority in respect of “place, person, laws,
powers”, and it is clearly conditional and not delegated
legislation as laid down in Queen v. Burah [(1877-8) 5 IA 178,
180, 194, 195] and must, in consequence, be held to be
valid…
13
the matter is left to the unfettered and uncanalised discretion
of the Government, and is therefore repugnant to Article 14. It
is true that that section does not itself indicate the
grounds on which exemption could be granted, but the
preamble to the Ordinance sets out with sufficient
clearness the policy of the legislature; and as that governs
Section 15 of the Ordinance, the decision of the Government
thereunder cannot be said to be unguided…”
(emphasis supplied)
(emphasis supplied)
6. G.P. Singh, Principles of Statutory Interpretation (1st edn., Lexis Nexis 2015)
14
23 Adopting the construction which has been suggested by the appellant would
defeat the object and intent underlying the insertion of Section 10A. The onset of the
financial health of corporate enterprises. The Ordinance and the Amending Act
enacted by Parliament, adopt 25 March 2020 as the cut-off date. The proviso to
Section 10A stipulates that "no application shall ever be filed" for the initiation of the
CIRP "for the said default occurring during the said period”. The expression "shall
ever be filed" is a clear indicator that the intent of the legislature is to bar the
default which has occurred on or after 25 March 2020 for a period of six months,
extendable up to one year as notified. The explanation which has been introduced to
remove doubts places the matter beyond doubt by clarifying that the statutory
provision shall not apply to any default before 25 March 2020. The substantive part
of Section 10A is to be construed harmoniously with the first proviso and the
to impose a bar on the filing of applications for the commencement of the CIRP in
respect of a corporate debtor for a default occurring on or after 25 March 2020; the
embargo remaining in force for a period of six months, extendable to one year.
Acceptance of the submission of the appellant would defeat the very purpose and
object underlying the insertion of Section 10A. For, it would leave a whole class of
corporate debtors where the default has occurred on or after 25 March 2020 outside
the pale of protection because the application was filed before 5 June 2020.
15
24 We have already clarified that the correct interpretation of Section 10A cannot
be merely based on the language of the provision; rather it must take into account
the object of the Ordinance and the extraordinary circumstances in which it was
promulgated. It must be noted, however, that the retrospective bar on the filing of
applications for the commencement of CIRP during the stipulated period does not
extinguish the debt owed by the corporate debtor or the right of creditors to recover
it.
25 Section 10A does not contain any requirement that the Adjudicating Authority
must launch into an enquiry into whether, and if so to what extent, the financial
health of the corporate debtor was affected by the onset of the Covid-19 pandemic.
by an unheralded public health crisis. It was cognizant of the fact that resolution
applicants may not come forth to take up the process of the resolution of
insolvencies (this as we have seen was referred to in the recitals to the Ordinance),
which would lead to instances of the corporate debtors going under liquidation and
no longer remaining a going concern. This would go against the very object of the
IBC, as has been noted by a two-Judge bench of this Court in its judgment in Swiss
Ribbons (P) Ltd. v. Union of India7. Speaking through Justice Rohinton F Nariman,
7
(2019) 4 SCC 17
16
foremost, a Code for reorganisation and insolvency resolution
of corporate debtors. Unless such reorganisation is effected
in a time-bound manner, the value of the assets of such
persons will deplete. Therefore, maximisation of value of the
assets of such persons so that they are efficiently run as
going concerns is another very important objective of the
Code. This, in turn, will promote entrepreneurship as the
persons in management of the corporate debtor are removed
and replaced by entrepreneurs. When, therefore, a resolution
plan takes off and the corporate debtor is brought back into
the economic mainstream, it is able to repay its debts, which,
in turn, enhances the viability of credit in the hands of banks
and financial institutions. Above all, ultimately, the interests of
all stakeholders are looked after as the corporate debtor itself
becomes a beneficiary of the resolution scheme—workers are
paid, the creditors in the long run will be repaid in full, and
shareholders/investors are able to maximise their investment.
Timely resolution of a corporate debtor who is in the red, by
an effective legal framework, would go a long way to support
the development of credit markets. Since more investment
can be made with funds that have come back into the
economy, business then eases up, which leads, overall, to
higher economic growth and development of the Indian
economy. What is interesting to note is that the Preamble
does not, in any manner, refer to liquidation, which is only
availed of as a last resort if there is either no resolution plan
or the resolution plans submitted are not up to the mark. Even
in liquidation, the liquidator can sell the business of the
corporate debtor as a going concern. (See ArcelorMittal
[ArcelorMittal (India) (P) Ltd. v. Satish Kumar Gupta, (2019) 2
SCC 1] at para 83, fn 3).”
construction which will advance the object which was sought to be achieved by
enacting the provision. We are therefore unable to accept the contention of the
appellant.
17
26 The date of the initiation of the CIRP is the date on which a financial creditor,
authority for initiating the process. On the other hand, the insolvency
commencement date is the date of the admission of the application. This distinction
is also evident from the provisions of sub-section (6) of Section 7, sub-section (6) of
Section 9 and sub-section (5) of Section 10. Section 7 deals with the initiation of the
operational creditor; Section 9 provides for the application for initiation of the CIRP
by an operational creditor; and Section 10 provides for the initiation of the CIRP by a
corporate applicant. NCLAT has explained the difference between the initiation of
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by clarifying that such bar shall not operate in respect of any
default committed prior to 25th March, 2020.”
27 We are in agreement with the view which has been taken by the NCLAT for
the reasons which have been set out earlier in the course of this judgment. We
affirm the conclusion of the NCLAT. The appeal is accordingly dismissed. There
…….………….…………………...........................J.
[Dr Dhananjaya Y Chandrachud]
…….…………………………...............................J.
[MR Shah]
New Delhi;
February 9, 2021.
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